Notice2026-03871
Amended and Restated Order Under Section 17(h)(4) of the Securities Exchange Act of 1934 Granting Exemption From Rule 17h-1T and Rule 17h-2T for Certain Broker-Dealers Maintaining Capital of Less Than $100 Million and Total Assets of Less Than $1 Billion
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
February 26, 2026
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 91 Issue 38 (Thursday, February 26, 2026)</title>
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[Federal Register Volume 91, Number 38 (Thursday, February 26, 2026)]
[Notices]
[Pages 9661-9663]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-03871]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-104881]
Amended and Restated Order Under Section 17(h)(4) of the
Securities Exchange Act of 1934 Granting Exemption From Rule 17h-1T and
Rule 17h-2T for Certain Broker-Dealers Maintaining Capital of Less Than
$100 Million and Total Assets of Less Than $1 Billion
February 24, 2026.
I. Introduction
Section 17(h) was added to the Securities Exchange Act of 1934
(``Exchange Act'') to address the concern that financial problems of a
broker-dealer's affiliate could cause the broker-dealer to fail or
experience significant financial difficulties.\1\ The Securities
[[Page 9662]]
and Exchange Commission (``Commission'') adopted Rules 17h-1T and 17h-
2T under Section 17(h) of the Exchange Act.\2\ As discussed below,
these rules contain provisions that exempt certain broker-dealers from
the requirements of the rules. This amended and restated order (``this
Order'') exempts from the requirements of those rules additional
broker-dealers that maintain total assets of less than $1 billion and
capital of less than $100 million.\3\
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\1\ See Final Temporary Risk Assessment Rules, Exchange Act
Release No. 30929 (July 16, 1992), 57 FR 32159 (July 21, 1992)
(``17h Adopting Release'').
\2\ See 15 U.S.C. 78q(h) (``Section 17h of the Exchange Act'');
17 CFR 240.17h-1T (``Rule 17h-1T''); 17 CFR 240.17h-2T (``Rule 17h-
2T'').
\3\ For the purposes of the exemption in this Order, total
assets is reported as line item 940 on Form X-17A-5 (the ``FOCUS
Report'') and capital is reported as line item 3530 on the FOCUS
Report.
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Rule 17h-1T requires a broker-dealer to maintain and preserve
certain records, including: (1) an organizational chart that includes
the broker-dealer and its affiliates; (2) policies, procedures, or
systems concerning methods for monitoring and controlling financial and
operational risks to the broker-dealer resulting from the activities of
its affiliates; (3) a description of material pending legal and
arbitration proceedings involving the broker-dealer or its affiliates;
(4) consolidating and consolidated financial statements; and (5) the
broker-dealer's securities and commodities position records. Rule 17h-
2T requires a broker-dealer to file Form 17-H with the Commission on a
quarterly basis. The form elicits information concerning certain of the
broker-dealer's affiliates.\4\
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\4\ See Form 17-H, available at <a href="https://www.sec.gov/about/forms/form17-h.pdf">https://www.sec.gov/about/forms/form17-h.pdf</a>.
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Paragraph (d) of Rule 17h-1T and paragraph (b) of Rule 17h-2T
exempt certain broker-dealers from the applicability of Rules 17h-1T
and 17h-2T. Broker-dealers that are exempt from Rule 15c3-3 pursuant to
paragraph (k)(2) of that rule and broker-dealers that do not hold funds
or securities for customers, owe money or securities to customers, or
carry the accounts of customers (collectively ``non-carrying broker-
dealer'') are exempt from Rules 17h-1T and 17h-2T, as long as such
broker-dealers maintain capital of less than $20 million (the ``$20
million capital threshold'').\5\ In 2020, the Commission issued an
exemptive order (the ``2020 Order'') that effectively raised the $20
million capital threshold. Under the 2020 Order, the Commission
exempted a non-carrying broker-dealer that maintains total assets of
less than $1 billion (the ``$1 billion total asset threshold'') and
capital of greater than $20 million but less than $50 million (the
``$50 million capital threshold'').\6\
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\5\ 17 CFR 240.17h-1T(d)(1); 17 CFR 240.17h-2T(b)(1).
\6\ See Order Under Section 17(h)(4) of the Securities Exchange
Act of 1934 Granting Exemption from Rule 17h-1T and Rule 17h-2T for
Certain Broker-Dealers Maintaining Capital, Including Subordinated
Debt of Greater than $20 Million But Less than $50 Million, Exchange
Act Release No. 89184 (June 29, 2020), 85 FR 40356 (July 6, 2020).
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The Commission is issuing this Order to raise the $50 million
capital threshold to $100 million. This Order does not alter the $1
billion total asset threshold. This Order supersedes and replaces the
2020 Order.
II. Discussion
Section 17(h)(4) of the Exchange Act provides that the Commission
by rule or order may exempt any person or class of persons, under such
terms and conditions and for such periods as the Commission shall
provide in such rule or order, from the provisions of Section 17(h) of
the Exchange Act, and the rules thereunder. The statute further
provides that, in granting such exemptions, the Commission shall
consider, among other factors:
<bullet> Whether information of the type required under section
17(h) of the Exchange Act is available from a supervisory agency (as
defined in section 3401(6)of title 12), a State insurance commission or
similar State agency, the Commodity Futures Trading Commission or a
similar foreign regulator;
<bullet> The primary business of any associated person;
<bullet> The nature and extent of domestic or foreign regulation of
the associated person's activities;
<bullet> The nature and extent of the registered person's
securities activities; and
<bullet> With respect to the registered person and its associated
persons, on a consolidated basis, the amount and proportion of assets
devoted to, and revenues derived from, activities in the United States
securities markets.
The Commission has administered the risk assessment program under
Section 17(h) of the Exchange Act since 1992. Based on this experience,
it is appropriate to raise the $50 million capital threshold to $100
million. This Order does not alter the $1 billion total asset
threshold.
From the outset, the Commission's risk assessment program under
Section 17(h) of the Exchange Act sought to be risk-based and to focus
on larger broker-dealers. For example, although the Commission
originally proposed a capital threshold of $5 million when it proposed
rules under Section 17(h), it ultimately adopted a $20 million capital
threshold,\7\ because the number of broker-dealers subject to Rules
17h-1T and 17h-2T would be reduced without a corresponding trade-off in
risk.\8\ Information filed by broker-dealers on the FOCUS Report as of
September 30, 2025 indicates that broker-dealers above the $100 million
capital threshold and $1 billion asset threshold, coupled with broker-
dealers already supervised by the Commission pursuant to Rule 15c3-
1e,\9\ represent approximately 97% of total capital of all broker-
dealers. Thus, increasing the capital threshold while maintaining the
$1 billion assets threshold would continue to ensure supervision of
approximately 97% of broker-dealer capital while providing relief to
approximately 35 broker-dealers or approximately 14% of the
approximately 244 broker-dealers currently subject to Rules 17h-1T and
17h-2T.
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\7\ See Proposed Temporary Risk Assessment Rules, Exchange Act
Release No. 29635 (Aug. 30, 1991), 56 FR 44016 (Sept. 6, 1991).
\8\ See 17h Adopting Release at 32164-65.
\9\ Many of the largest broker-dealers, which use alternative
methods of computing their net capital under Appendix E of Rule
15c3-1, are exempt from Rules 17h-1T and 17h-2T but are subject to
heightened monitoring as part of the Commission's Risk Supervised
Broker-Dealer Program. See 17 CFR 17h-1T(d)(4) and 17 CFR 17h-
2T(b)(4). See also 17 CFR 240.15c3-1e.
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Exempting certain firms that maintain capital of less than $100
million from Rules 17h-1T and 17h-2T is intended to reduce the number
of broker-dealers subject to the rules without materially increasing
risk. The Commission's risk assessment program will continue to focus
on those broker-dealers and affiliates that are in a position to
potentially pose significant risk to customers and to the orderly,
fair, and efficient functioning of the securities markets. Increasing
the exemption capital threshold to $100 million will reduce the
regulatory burden for a cohort of smaller broker-dealers that pose less
risk to customers and to the orderly, fair, and efficient functioning
of the securities markets relative to broker-dealers that will continue
to be subject to the rules.
In considering this Order, the Commission focused on the fourth
factor in Section 17(h)(4) of the Exchange Act (i.e., the nature and
extent of the person's securities activities).\10\ Although the other
four factors included in Section 17(h)(4) of the Exchange Act were
considered, the Commission determined they did not inform the exemption
as the exemption does not alter the type of information required to be
reported or preserved, does not vary
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in applicability based upon the business activities of or the extent of
regulatory oversight over a broker-dealer's affiliate, and applies
regardless of the extent of a broker-dealer and its affiliate
conducting business in the United States.\11\ The firms that will be
able to rely on this exemption are relatively small in size, as
measured by the amount of total assets and by the amount of capital
that they maintain. These exempted firms--because of their relatively
small size and the fact that they are non-carrying broker-dealers--
present less risk to their customers and to the financial markets.
Consequently, the objectives of this exemption align most closely with
the fourth factor in Section 17(h)(4) of the Exchange Act (i.e., the
nature and extent of the registered person's securities activities).
This Order strikes an appropriate balance in terms of relieving certain
smaller broker-dealers from the requirements of Rules 17h-1T and 17h-2T
while continuing to subject to the rules those broker-dealers that pose
greater risk to the financial markets, investors, and other market
participants.
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\10\ 15 U.S.C. 78q(h)(4).
\11\ 15 U.S.C. 78q(h)(4)(A)-(C) & (E).
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III. Conclusion
It is hereby ordered pursuant to Section 17(h)(4) of the Exchange
Act that any broker-dealer that does not hold funds or securities for,
or owe money or securities to, customers and does not carry the
accounts of or for customers, or that is exempt from Rule 15c3-3
pursuant to paragraph (k)(2) of that rule, is hereby exempt from Rule
17h-1T and Rule 17h-2T, if it maintains total assets of less than $1
billion (as reported as line item 940 on the FOCUS Report) and capital
of at least $20 million but less than $100 million (as reported as line
item 3530 on the FOCUS Report).\12\
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\12\ See supra note 3.
By the Commission.
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2026-03871 Filed 2-25-26; 8:45 am]
BILLING CODE 8011-01-P
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</html>Indexed from Federal Register on February 26, 2026.
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